Apple's iPhone dumped by 'big three' Russian carriers over subsidies, marketing costs
Within the past week, three major Russian wireless providers have stopped carrying Apple's iPhone, with the largest telecom, MTS, dropping the handset due to the high subsidy costs associated with being an Apple partner carrier.
Russian telecom share. | Source: AC&M consulting via Fortune
While the Russian market is not yet a huge source of revenue for the smartphone market, Apple's loss of support from MTS, VimpelCom and Megafon will negatively impact its reach in the burgeoning market, reports Fortune
As Bloomberg reported last week, Russia's largest provider by subscribership, MTS, announced that it would be dropping the iPhone from its lineup, saying subsidies and marketing costs were to blame.
?Apple wants operators to pay them huge money, subsidizing iPhones and their promotion in Russia,? said MTS CEO Andrei Dubovskov. ?Now it?s not beneficial for us. It?s good we stopped selling the iPhone as these sales would?ve brought us a negative margin.?
Fortune's Philip Elmer-Dewitt speculates three factors played a part in the "big three's" decision to ditch Apple's handset. First, Russian carriers are limited by the federal agency Rospechat, which does not allow subsidies on the same level as seen in the U.S. For example, MTS is not able to offer an iPhone 5 for $199.
Duties and taxes are also higher than normal for Europe, with an unlocked 16GB iPhone 5 selling for roughly $925 on on the just-opened Russian Online Apple Store, or $276 more than an identical U.S. variant. Apple says $140 goes to Russian VAT, while the remaining $129 is for foreign exchange rates, import duties, and channel mark-up.
Finally, Apple's contract requirements, specifically those pertaining to marketing, are said to be extremely stringent. Because the contract terms are unknown, it is impossible to tell whether Russian carriers are subject to any special clauses.
The future of the iPhone in Russia is unclear, though estimates from IDC suggest that demand for the handset was already on the decline, dropping to 8.3 percent in the second quarter of 2013, down from 9 percent in 2012.
Russian telecom share. | Source: AC&M consulting via Fortune
While the Russian market is not yet a huge source of revenue for the smartphone market, Apple's loss of support from MTS, VimpelCom and Megafon will negatively impact its reach in the burgeoning market, reports Fortune
As Bloomberg reported last week, Russia's largest provider by subscribership, MTS, announced that it would be dropping the iPhone from its lineup, saying subsidies and marketing costs were to blame.
?Apple wants operators to pay them huge money, subsidizing iPhones and their promotion in Russia,? said MTS CEO Andrei Dubovskov. ?Now it?s not beneficial for us. It?s good we stopped selling the iPhone as these sales would?ve brought us a negative margin.?
Fortune's Philip Elmer-Dewitt speculates three factors played a part in the "big three's" decision to ditch Apple's handset. First, Russian carriers are limited by the federal agency Rospechat, which does not allow subsidies on the same level as seen in the U.S. For example, MTS is not able to offer an iPhone 5 for $199.
Duties and taxes are also higher than normal for Europe, with an unlocked 16GB iPhone 5 selling for roughly $925 on on the just-opened Russian Online Apple Store, or $276 more than an identical U.S. variant. Apple says $140 goes to Russian VAT, while the remaining $129 is for foreign exchange rates, import duties, and channel mark-up.
Finally, Apple's contract requirements, specifically those pertaining to marketing, are said to be extremely stringent. Because the contract terms are unknown, it is impossible to tell whether Russian carriers are subject to any special clauses.
The future of the iPhone in Russia is unclear, though estimates from IDC suggest that demand for the handset was already on the decline, dropping to 8.3 percent in the second quarter of 2013, down from 9 percent in 2012.
Comments
iPhones will now be an even more elite status symbol in russia.
The russians really love their iPhones. Or at least they love apps. I'm privy to some info I can't go into, but let me just say that the AppStore is a huge success in russia.
I wonder how the Russian consumer will react to this. Perhaps they'll switch carriers in droves.
Obvious collusion.
They'll do the same now.
The telecoms have only screwed themselves. So screw 'em. Who cares?
I wonder if they will change their tune when the "low cost" iPhone gets released later this year?
Of course there may still be marketing costs, but the subsidy would be greatly reduced.
Quote:
Originally Posted by mcarling
Obvious collusion.
Not necessarily, it could just be a domino effect, one carrier stepping up and others following with relief. And if the carriers were genuinely making a loss on every iPhone sold then it's good sense for the health of the overall ecosystem. If consumers want iPhones they can buy them from Apple direct, maybe Apple will start offering their own financing if that's a big enough customer draw.
Or maybe Apple will decide the carrier model is worth enough for them to renegotiate. That'd be risky though, other markets will latch onto the weakness.
Maybe treat Russia like the backwater it is and roll out the India market strategy? Having a different strategy for questionable economies has some attraction.
Quote:
Originally Posted by FreeRange
Of course it does. If all my competitors drop the iPhone, I now have a unique competitive advantage to attract those customers! This also smells of Samsung foul play of buying marketshare...
A unique competitive advantage to sell a product that loses you money is not much of an advantage.
It doesn't smell of anything.
Quote:
Originally Posted by jfc1138
Maybe treat Russia like the backwater it is and roll out the India market strategy? Having a different strategy for questionable economies has some attraction.
I could see Apple implementing some of their "India strategies" in more markets. Those strategies caused a decent sales uptick for them, so maybe payment plans and buyback recycling programs will help the Russian market?
Quote:
Originally Posted by Jessi
iPhones will now be an even more elite status symbol in russia.
sad day If the people who gave us Constructivism and Tchaikovsky now think that a piece of electronics made in China can be an elite status symbol
The ones who gave us vodka and communism, too, so don't chick your hatching before they're counted.
Oh, and knock off the FUD.
Every time I travel to Russia, my friends and relatives there ask me to bring them iPhone.
They can only buy one for $1k there while the unlocked iPhone is only $700 including tax in my local Apple store.
Apple really needs to start offering more variety with their iPhone lineup. I really hope those rumored, ugly colored, budget iPhone pics are fake. They don't need to make a budget iPhone. They need to make a small, medium, and large iPhone for people who feel like size matters. Then, we can take those new iPhones and make them whatever color we want with a case/bumper.
Can you imagine if the only Mac you could pick from was the Mac Pro 2012, 2010, and 2009 models? Or the 15" MacBook Pro 2012, 2011, and 2010 models - NO 13" option, NO MacBook Air models. That is essential what are options are with the iPhone right now - models 2012, 2011, and 2010.
Nice FUD.
Merely more evidence of Apple's impending doom. ROTFLOLAPIMP!!